WASHINGTON AND LOS ANGELES — The nation's biggest banks are regaining their health, but some need to replenish their coffers to withstand any new difficulties, the government said in an upbeat report Thursday.

The Federal Reserve's highly anticipated "stress tests" found that 10 of the 19 largest banks needed to bolster their capital by a combined $75 billion. Most of that must be raised by two banks with a large California presence -- Bank of America Corp. and Wells Fargo & Co. -- highlighting the role of the state's housing market meltdown in the recession.

Overall, however, federal officials and industry experts said the results of the stress tests were another sign that the economy was getting closer to the road to recovery.

For The Record Los Angeles Times Saturday, May 09, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 51 words Type of Material: Correction Bank 'stress tests': In some editions Friday, a headline with an article in Section A about a Federal Reserve report on the nation's biggest banks said the government found that 10 of the 19 largest banks needed to raise a total of $75 million in capital. The figure is $75 billion.

Economist Sung Won Sohn summarized the stress-test results as "a sigh of relief."

"The results are not as bad as feared," said Sohn, a professor at Cal State Channel Islands and a former Wells Fargo executive. "The economic conditions are improving and the economic trough is not too far away."

Bert Ely, a consultant to banks, was less optimistic, saying the economy had not reached bottom and big losses on commercial real estate loans were only beginning to burn holes on balance sheets.

"It's really going to be a question of what happens to credit quality," Ely said. "I'm not convinced that the stress tests have fully addressed the potential problems out there. If things take a bad turn, all the concerns could come back again."

The stress tests were designed to assess the health of the major U.S. banks and determine whether they could handle a deepening of the recession. The process included a stark assessment of the cost of the financial crisis: Under a worse-case scenario -- not a worst-case scenario, as critics wanted -- the total losses of the 19 banks from mid-2007 to the end of 2010 could reach nearly $950 billion.

The tests showed that the banks would need very little new federal bailout money but would still need to boost capital through stock offerings, asset sales or other means.

Bank of America needs to raise $33.9 billion, more than any other bank, followed by Wells Fargo with $13.7 billion and GMAC with $11.5 billion.

The release of the data set off a flurry of announcements by banks of their plans to raise the needed money. BofA and Wells Fargo said they would sell new stock to the public.

The 10 banks have until June 8 to develop detailed plans and five more months to raise capital privately before the government would step in with more bailout money.

"They've got their marching orders. . . . They're not going to sit around," said Brian Bethune, chief financial economist at IHS Global Insight, who believes that the financial system has recovered enough that the banks can raise the $75 billion privately. "It's in their own interest now from a competitive point of view to satisfy this requirement as soon as possible."

That's because nine of their big competitors have no need to increase their capital, and among those rivals is the nation's largest bank by total assets, JPMorgan Chase & Co.

Banking executives were relieved that the stress tests were over, though they didn't necessarily agree with the government's assessments.

"This stress test was probably more critical for us than others," Vikram Pandit, Citigroup's chief executive, said in a conference call with analysts. "I'm happy that this part of the process is done and that this chapter is behind us."

Citigroup's chief financial officer, Ned Kelly, called the process "a milestone for us and for the industry."

The Fed led the stress-test process, which applied to U.S. banks with total assets of more than $100 billion. Geithner said the results "bring a level of disclosure that goes well beyond what you typically see."

"I think it will . . . make it easier for banks to ultimately be in a position to repay the government," he said.

The banks had made significant improvements in their balance sheets in the first three months of this year, the Treasury chief said. The stress tests found that the banks would have needed $185 billion in additional capital at the end of 2008, but that figure had been trimmed by more than half.

Under the worse-case scenario, the 19 banks would face total losses of $599.2 billion for 2009 and 2010, with the biggest estimated losses on first mortgages, at $102.3 billion, and second mortgages, at $83.2 billion, as the housing market continues to suffer.

The release of the stress-test results clears the way for the banking system to start to return to normal after eight months of upheaval.